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$A plummets after RBA talks currency down

Jason Cadden

The Australian dollar has fallen more than one US cent after the central bank governor said it was too high.

At 1700 AEST on Thursday, the local unit was trading at 93.66 US cents, down from 94.63 cents on Wednesday.

During the day the currency dropped as low as 93.62, its lowest level since June 25.

In an unusually blunt speech Mr Stevens said in Hobart that the low cash rate is helping the economy but the stubbornly high Australian dollar is hurting it.

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"Most measurements would say it is overvalued, and not by just a few cents," he said.

JP Morgan interest rate strategist Sally Auld said she believes it is the start of another round of efforts by the RBA to talk down the currency.

"Especially given the wide and persistent divergence between the Australian dollar and commodity prices," she said.

"At present, with investors generally bullish on US growth prospects in the second half of 2014 and the Australian dollar significantly overvalued, the opportunity for jawboning probably looked ripe once again.

"We are forecasting the Australian dollar to be 90 US by the first quarter of 2015."

The main focus for markets during the offshore session on Thursday will be the release of official US employment data for June.

At 1700 AEST, the Australian dollar was at 95.42 Japanese yen, up from Wednesday's close of 95.05 yen, and at 68.58 euro cents, down from 69.18 euro cents.

Australian bond futures prices were higher rose after the RBA speech.

RBC Capital Markets currency strategist Michael Turner said the comments showed that the RBA is still cautious about the Australian economy.

That encouraged a move into safe haven assets and lifted bond prices.

"The RBA continues to assert that the full effects of loose policy are yet to be seen," Mr Turner said.

"Consumer spending seems unlikely to rebound significantly in the second half of the year and we see sub-trend consumption growth persisting."

At 1630 AEST on Thursday, the September 2014 10-year bond futures contract was trading at 96.450 (implying a yield of 3.550 per cent), up from 96.430 (3.570 per cent) on Wednesday.

The September 2014 three-year bond futures contract was at 97.370 (2.630 per cent), up from 97.310 (2.690 per cent).